Dick Bove: Fannie and Freddie Shouldn't Be Killed

While many politicians in both parties want to get rid of mortgage agencies Fannie Mae and Freddie Mac, now in government conservatorship, bank stock analyst Richard Bove of Rafferty Capital Markets disagrees.

"The current plan to wind down Fannie Mae and Freddie Mac would result in lower housing prices for everyone," he writes on CNBC.com. "It would harm the United States economy by lowering growth. It would increase unemployment."

Conventional wisdom holds that the two agencies are failures that worsened the housing crisis and must thus be eliminated, Bove says.

"In fact, the opposite is true," he maintains. "For eight decades, the system that they represent was successful in allowing tens of millions of Americans to own their own homes. The system was abused by politicians, regulators, and bankers beginning in the mid-1990s and this led to the downfall of these two giant companies."

So the problem was one of political and financial interference, Bove says.

Without Fannie and Freddie, "no bank will be willing to make 20- or 30-year self-amortizing mortgages," he writes. "They will be willing to make 10- and 15-year adjustable-rate loans."
And that means home affordability will drop, Bove says.

Harlan Green, publisher of PopularEconomics.com, agrees with him that Fannie and Freddie weren't to blame for the housing collapse. "Fannie Mae and Freddie Mac didn't precipitate the housing bust," he writes on The Huffington Post.

"They weren't even the main issuers of faulty mortgages that imploded with the Great Recession. It was the federally-supervised commercial banks themselves that misrepresented many of the mortgages sold to Fannie and Freddie."